Top Quote Swishes

Why investors are shopping for Avenue Supermarts’ stock

Neville Noronha, managing director and chief executive officer of Avenue Supermarts. (Mint)

Shares of Avenue Supermarts Ltd rose as much as 6% on Monday. Not without reason. The financial year has begun on a good note for the retailer operating the DMart supermarket store chain. On the margin front, June quarter financial results, announced on Saturday, have brought cheer.

The company’s Ebitda margin expanded, after three consecutive quarters, soothing investor anxiety around margin pressure. For the June quarter, Ebitda margin increased 104 basis points over the same period last year to 10.3%. Ebitda is earnings before interest, tax, depreciation and amortisation and a key measure of profitability. One basis point is one-hundredth of a percentage point.

“Avenue Supermarts’ Q1FY2020 result allays consensus concern of margin pressure in the face of competition from both online and offline grocery retailers,” said brokerage firm ICICI Securities Ltd. According to the broker, Ebitda margin, even after adjusting for Ind-AS 116 impact, expanded 70 basis points year-on-year to 10%, which is the second-highest in 13 quarters.

Of course, investors will watch hereon whether the trend sustains, though the company has maintained that margins of the first quarter were not typically a reflection of the entire year. “Gross margin was slightly ahead of our expectations and our continued operational efficiency has resulted in higher profit after tax margins,” said Avenue Supermarts.

Monday’s jump in share price, makes already expensive valuations, even pricier. Avenue Supermarts’ shares currently trade at a whopping 74 times estimated earnings for financial year 2020, making it one of the most expensive stocks in India’s retail universe.